'Liitle Red Rooster' The Face of Protectionism in the G20 - US versus China

In advance of the Piitsburgh G20 Leaders Summit - set for Septmebr 24th-25th - the World Trade Organization (WTO) put out its fourth Report on trade and investment measures among the G20. Rather eagerly awaited is the yet to be published Second Report of the Global Trade Alert Project (truth in advertising the Centre for International Governance Innovation (CIGI), and yours truly, are involved in this Project along with CEPR (Centre for Economic Policy Research ) and others). This Project is an independent initiative dedicated to, among other things, tracking G20 adherence to its own 'Standstill Provision.' This Provision - announced at the first G20 Leaders Summit in Washington in November 2008 - and repeated thereafter in various Summit venues is a commitment by the G20 not to raise, "new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing WTO inconsistent measures to stimulate exports."

What then of this commitment? In the Summary of the WTO Report, the WTO concludes, "There is no indication of a descent into high-intensity protectionism as a reaction to the crisis, involving widespread resort to trade or investment restriction or retaliation." But this conclusion, and the accompanying almost palatable, 'sigh of relief' arises in part because the G20 countries failed to generate the 'frenzy' of trade protection measures - feared by many experts at the time of the commencing of the Great Recession. Yet the G20 countries have failed to adhere to the Standstill commitment not to raise discriminatory measures.

In fact this fourth Report traces, what the authors (The WTO Director General Pascal Lamy and the heads of the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development) call,

a dramatic increase in the number of antidumping (AD) investigations initiated by China over the first half of the year. It also shows a dramatic increase in the number of safeguard investigations in India over the same time period compared to the previous year.

Having just returned from Washington, the rise in trade remedy actions was 'front-and-center' for Washington officials and the thinktank community. Over the weekend President Obama decided to impose safeguard restrictions on imports of tires from China. The decision started tongues wagging. Under American trade law (and the laws of other WTO member countries) petitoners can bring what is referred to as a section 421 petition - the so-called China specific safeguard. This remedy was a provison that WTO meber states insisted on at the time that China was accepted for membership at the WTO. The provision enables petitioners to seek relief when they allege that Chinese import products are increasing in manner that, "cause or threaten to cause market disruption to the domestic producers of a like or directly competitive product." Unlike the traditional safeguard measure, this provision is China specific and the threshold for recommending tariff or quotas is much lower than the normal safeguard provision - in the United States it is section 201.

The United Steelworkers of America brought this petition back in April on behalf of 15,000 workers at 13 plants in 9 states. While this petition is not the first sought under this China specific safeguard provision, it is the first time that a US President has accepted a recommendation for imposing tariffs (President Bush had rejected every previous recommendation for imposition of tariffs from the US International Trade Commmission). It started tongues wagging. And those additional tariffs agreed to President Obama are quite consequential. The tariiffs on consumer tires from China will rise an additional 35 percent ad valorem in the first year, 30 percent in the second year and 25 percent in the third year (The USITC's recommendation was even higher than the tariffs imposed by the President).

The anger from China was immediate and loud. In the Chinese blogosphere there were angry denunciations from Chinese citizens including calls for the Chinese government to sell its US Treasury holdings (although I'm not sure who might be hurt more by this proposed action). Just two days later - September 13th - the Ministry of Commerce announced the opening of antidumping and anti-subsidies investigation on automobile and chicken meat originated from the United States. Most perceived the Chinese investigation as retaliation for the safeguard announcement.

This opening of this investigation against the US and the initiation of 14 AD investigations by the Chinese in the first half of the year as compared to only 3 investigations over the same period in 2008 raised the concern that the global trading system was beginning to see the rising trend of protectionism that had been feared but not actualized earlier in response to rapidly growing unemployment among the G20 countries.

The opinions expressed in this article/multimedia are those of the author(s) and do not necessarily reflect the views of CIGI or its Board of Directors.

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